Document retention is an important part of running a business. It can help you avoid tax penalties and make sure your finances are in order. Document retention can also help you stay compliant with legal regulations. This article will explain how to set up a document storage system for your business, as well as what types of documents need to be kept and how long they should be stored for after they’ve been created.
What is document retention?
Document retention is the process of storing documents for a certain period of time. It’s important to keep track of your business’s documents so that they can be retrieved when needed, but there are several reasons why this practice is useful:
- You’ll be able to run your company efficiently. If you have an employee who needs to find a contract from last year in order to complete a project, having access to it will allow them to do their job more effectively and get the task done faster than if they had no record at all!
- You won’t be penalised by regulators or courts if there was ever an audit or lawsuit related to one of your financial transactions (for example). If someone wanted evidence showing how much money was spent on advertising during 2014 before making claims against us based on our spending habits during that time period–or even just verifying whether those claims were true–we’d have everything right there in front of us without having had any trouble locating anything beforehand because all evidence has been stored safely away where nobody else could see them except ourselves.”
How long should you keep records?
- HMRC has a minimum retention period for records. This means that if you have not used a record in your business for at least three years, HMRC will expect you to destroy it.
- However, HMRC allows businesses to keep records longer than this if they are needed for defending claims or disputes. For example, if an employee raises a grievance against you and demands compensation from them (for example wrongful dismissal), then it may be necessary for you to keep records relating back as far as possible so that you can defend yourself against the claim successfully in court or tribunal hearings – however long ago it happened!
How to set up a document storage system – Digitise them!
Organising your documents is the first step to building a proper document retention system. If you don’t know where your important files are or how to access them when needed, it’s going to be difficult for anyone else – including yourself – to find them later on.
Therefore investing in digitising the records that have a retention period can be beneficial in many ways:
- Improved access: Digitised records can be accessed from anywhere, at any time, and on any device, making it easier for employees to retrieve information when they need it.
- Reduced risk: Digitising records reduces the risk of physical damage or loss due to environmental factors, such as fire or flooding, and makes it easier to recover lost information.
- Cost savings: Digitising records can be more cost-effective than traditional storage methods, as it eliminates the need to purchase additional physical storage space and reduces the costs associated with maintaining physical records.
- Improved security: Digital records can be encrypted and stored in secure, centralised locations, reducing the risk of unauthorised access and ensuring that confidential information is protected.
Document retention is important to make sure your business complies with tax rules
There are a number of penalties and fines that HMRC can impose if you don’t keep records. These include:
- Fines for not keeping records in the right way.
- Fines for not keeping records for long enough.
- Fines because they think your records aren’t complete enough or accurate enough to show what tax was due, or what expenses were paid out or whether they were allowable deductions against income profits (e.g., business lunches).
We hope this article has helped you understand the importance of document retention. The team is always ready to help you and your business if you are thinking of making the steps forward to a digital storage system!